Project Finance SoE Q's

Question 1

What is the purpose of post contract cost reporting?

Answer 1

Provide an overview of the client’s currant financial commitment

Inform the client of the likely outturn cost

Give the client an understanding of potential savings or additional monies required

Question 2

How are risks identified?

Answer 2

Following a risk analysis as part of a risk workshop.

A risk analyses is used to identify potential risks, identifying the likelihood vs impact to give an overall severity rating.

Question 3

What is a lump sum contract?

Answer 3

• Amount advised by the contractor to complete the works for a set amount.

Question 4

What is a cost reimbursable contract?

Answer 4

• Employer pays the contractor for actual costs incurred plus % for overheads and profit.

Question 5

What examples of bespoke cost reporting have you used?

Answer 5

• Mitchells and Butler, own financial statement templates are used.

Question 6

What are the importance of change control procedures?

Answer 6

• All relevant parties are notified
• Change is properly assessed in terms of cost, time, quality
• Formally records changes once agreed

Question 7

Can you elaborate on what is included within the Cost Reporting guidance note?

Answer 7

The cost reporting guidance note looks at a few differing elements. Looking at the different types of cost reports, including project, programme and detailed cost reports.

It further looks at costs that affect the construction cost i.e. fixed, and variable, including prov sums, prime cost sums, dayworks. As well as variations, which includes contract instructions, anticipated variations, loss and expense, fluctuations and risk allowances. Reporting of costs should be monthly to fall in line with valuations, but this is dependent on client requirements and therefore may be more/less.

Question 8

What are the different types of provisional sum?

Answer 8

Defined – Allowances within the contractors cost for prelims and OH&P

Undefined – No allowance within the contractors cost for prelims and OH&P, may be due additional time and money in respect of EoT and loss and expense.

Question 9

What is a prime cost sum?

Answer 9

A sum that the client provides for works yet to be fully defined and exclude a contractor mark-up.

Question 10

How are provisional sums dealt with at final account?

Answer 10

The value of the provisional sum is omitted and added back in as a priced variation.

Question 11

How do you report on the provisional sum costs during a project?

Answer 11

The costs will be included within the cost report as per their value in the contract. When priced the value should be omitted and valued as per actual costs.

Question 12

What do you mean by an effective change control procedure?

Answer 12

A clear and effective communication system which is able to manage efficient change on a project.

This is performed in various ways on my projects, the first being regular cost reporting, keeping project stakeholders up to date with any recent changes/variations.

I also now deal with electronic control systems, such as Asite and CEMAR, where project changes are raised and communicated to all project stakeholders.

Question 13

Why are change control procedures important?

Answer 13

Change control procedures are important to keep the client up to date on the financial position. This will inform them whether we are on budget, or whether there may be a requirement for additional funding.

Question 14

Can you talk me through the change control procedure on one of your projects?

Answer 14

On the Toby Carvery projects the client will advise of a change they would like to explore.
The CA will ask that the contractor provide a cost for the works.
Once they have provided a cost I will review the costs and advise whether they are appropriate.
If so, the CA will instruct the change for the contractor to proceed with the works.

Question 15

Why is cashflow forecasting important?

Answer 15

Cash flow forecasting is important as it details the income and expenditure across a period and is used as a tool for predicting funding at that point in time.

Question 16

How is a cash flow produced?

Answer 16

A cash flow is produced in one of two ways, depending on the stage of the project.

Pre contract I would use an S Curve formula, but post contract I would use the pricing document and the contractor’s programme.

Question 17

Is cashflow monitored during a project? If the cashflow is different to the valuation, what does that indicate?

Answer 17

Cash flow is monitored on an ongoing basis throughout the project. If the cashflow is different to the valuation it could mean a few things, either we are ahead of programme or behind.

Ahead could be the result of acceleration or re sequencing of works, behind could be due to re sequencing or project variations. Adverse weather may have played a part.

Question 18

What is ‘variation’?

Answer 18

A variation comes about due to an alteration or modification to the design, quantity or quality of the construction works.

A variation can refer to two things, a relevant matter or relevant event. These gives rise to loss and expense and EoT, respectively.

Question 19

Have you ever heard of ‘S Curve’? What is the rationale behind? Is there any difference between cashflow curves between contractor’s own and projects?

Answer 19

An S Curve is typically seen on a construction project. It refers to the sequencing of works and how progress would be slower to begin with, followed by an exponential increase in spending during the middle of the project. At the end it would start to level off again.

Question 20

Were the provisional sums on Project Zeta defined or undefined?

Answer 20

They were defined provisional sums. The contractor had made an allowance within their prelims and OH&P for the works.

Question 21

How were the provisional sums on Project Zeta firmed up?

Answer 21

The provisional sums were firmed up as the project progressed. For example, the contractor submitted costs against the welfare unit and these costs were reviewed, with the original cost omitted and the revised cost included as a variation.

Question 22

What was the role of the Employer’s Agent post contract?

Answer 22

• They were responsible for the following:
• Chair Project Meetings
• Review and approve design development
• Monitor project quality against ER’s
• Manage the delivery of the project against project programme
• Issue payment notices
• Implement the change management process

Question 23

What did you include within your cost reports/financial statements on Wythenshawe Hospital?

Answer 23

• Front cover
• Contents
• Executive Summary
• Cost Summary
• Provisional Sums
• Contingency
• Variations
• Anticipated Variations
• Claims
• Forecasted Final Account

Question 24

Are there any risks associated with provisional sums that you advised the client of on Project Zeta?

Answer 24

The risk associated with a provisional sum is that it is an estimate of cost and as such the value of the contract sum may increase or decrease when the work is priced.

If a undefined provisional sum had been used there may have been a concern that the contractor could claim additional time and expense. Although I advised that defined sums should be used to negate this.

Question 25

Can you give me an example of a provisional sum that you have used?

Answer 25

I used a provisional sum for the welfare facility at Project Zeta.

This was due to the fact that the design was not fully developed.

Question 26

How would you determine the value of that provisional sum?

Answer 26

There was a similar project completed for the client in 2019. This also had a welfare facility of a similar design. It was therefore concluded that the value of that provisional sum could be used as guidance, with relevant uplifts for time, location and inflation.

Question 27

What are the purposes of financial statement, behind simply knowing the ‘anticipated final account’?

Answer 27

The purpose of a financial statement is to provide the client with an understanding of their financial position, enabling them to make future decisions on change, whilst also understanding the required funding for the period.

Question 28

How often did you prepare reports on cost for the Toby Carvery project?

Answer 28

As these projects were only short in timescale, I would typically produce a report at the mid way point, as well as completion. The projects typically ranged from 4-6 weeks, so I would produce a report every 2-3 weeks.

Question 29

What was the purpose of financial reporting on the Toby Carvery project?

Answer 29

To provide the client with an understanding of their financial position. This allowed them to make informed choices on work instructions. The Toby Carvery projects had a set budget for remodelling, which occurs every 10 years or so. It was therefore essential that the budget was spent to make use of the budget.

It also provided the client with an understanding of funding purposes required for main contract valuations.

Question 30

What are the benefits of forecasting the final account?

Answer 30

The benefit of forecasting the final account is that it enables you to make future project decisions in terms of variations. You know the financial state of the project and therefore you are informed.

Question 31

What method did you use to value change on the Toby Carvery project?

Answer 31

As the Toby Carvery projects are based on agreed schedule of rates, project changes are valued using the agreed bill rates.

Question 32

Was the inclusion of the smoking shelter a variation to the Toby Carvery project?

Answer 32

Yes, this was a project variation. The original was due to remain, however, as the project progressed it was deemed to be in a state of disrepair.

As this is a standard item on the Toby Carvery projects, there was an agreed rate for this element of work.

Question 33

How did you ensure that the costs for the smoking shelter were fair and reasonable?

Answer 33

I deemed these rates to be fair and reasonable as they were based on an agreed schedule of rates.

Question 34

What was your involvement with updating the risk register on Project Zeta?

Answer 34

I was responsible for management of the risk allowances. Following on from the project meeting and discussion on the status of those risks, the risk allowances were amended dependent on the probability of them occurring.

Question 35

Once a risk had passed, how was this dealt with, in terms of contingency levels?

Answer 35

Once a risk had passed, the contingency was reduced proportionally.

I spoke to the client regarding the sum of money and determined what they wanted me to do with the contingency funds i.e. keep for further expense.

Question 36

What were the significant cost increases that were seen with the welfare unit?

Answer 36

The significant cost increases related to the external steel staircase, as well as the MEP elements within the welfare unit.

Question 37

What materials were short in availability and hard to come by?

Answer 37

As the project was during COVID-19, a lot of materials were difficult to come by. In particular, bricks and blocks, as well as long lead times on MEP equipment.

Question 38

How was this risk ultimately managed and dealt with?

Answer 38

The design had developed which had been led by the client. The design had been amended from single storey to two storey.

The risk was ultimately managed by having an effective change control procedure in place, with regular cost reporting advising the client of the current financial position.

The change control process highlighted that the final account had been forecast below the client’s budget, this was due to a series of project variations.

This included one exclusion of proposed temporary works which was omitted, with a saving of circa £100k.

This meant that the increase in welfare costs could be absorbed into the project, without seeing a project overspend.

Question 39

You mentioned that on the Toby Carvery project you assessed the variations and had to make sure they were fair and reasonable? What do you mean by this?

Answer 39

By fair and reasonable, I meant ensuring that they were in line with market value, or as per the agreed schedule of rates.

Where possible, variations were valued using bill rates, ensuring that the correct rates were being used. On site measures were completed to ensure that the quantities were correct.

Where there was no agreed rate, the contractor would provide a quotation for the works. I would review the costs and benchmark against similar rates to ensure they represented value for money.